Day 1 - Value Function Iteration

Goals

The goals for this day are to numerically solve the model and understand how it works, using the numerical techniques covered by Stephen Terry.

Deliverables

  • Plot the value function against the state variables. What is the intuition?
  • Plot the policy function against the state variables. What is the intuition?
  • How do the two plots above change with the values of \(\alpha\) and \(\delta\)?
  • Write a subroutine that takes the model’s solution and parameters as inputs, then produces a simulated data set as output.
  • Use the Tauchen (1986) method to discretize the state space.

Comparative Statics

Sensitivity Analysis